Why does Keynesian success feel like failure? The most terrible thing about the bailouts is that they worked.

• Author: Cavanaugh, Tim

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WITH HOLLYWOOD hipster clothing boutiques declaring "Broke Is the New Black," establishment media outlets circulating the tired phrase new normal to describe America's four-year-old economic stagnation, and producers trying to capture the increasingly fragmented national mood with titles like Downsized and Two Broke Girls, it seems everybody has given up hope for an economic intervention that will bring about the long-promised American Recovery.

In September a Bloomberg poll found that only 36 percent of Americans approve of President Barack Obama's efforts to create jobs. Around the same time, New York Times reporter Jennifer Steinhauer lamented that some congressional Democrats oppose Obama's $447 billion American Jobs Act "simply for its mental connection to" the 2009 American Recovery and Reinvestment Act. Also in America's newspaper of record, Nobel Laureate Paul Krugman, a prominent voice in favor of Keynesian economic intervention, argued that the 2009 stimulus failed because it was not large enough to close a gap in aggregate demand.

But the most important goal of the stimulus was achieved almost a year ago: Consumer spending returned to its pre-recession level in the last quarter of 2010. As Robert Higgs, the Independent Institute's senior fellow in political economy and editor of The Independent Review, noted in a blog post this fall, Commerce Department statistics show that the rate of personal consumption expenditures was "continuing to grow" and as of the second quarter of 2011 was "even farther above its prerecession peak." Real government expenditure for consumption and investment had also snapped back to its pre-recession level and in the second quarter "was running more than 2 percent higher" in real terms, Higgs wrote.

So why aren't Krugman and other Keynesian interventionists cheering? John Maynard Keynes' general theory teaches us that now should be Miller Time. According to the standard macroeconomic model, you revive a stagnant economy by closing the gap in aggregate demand. Taking up the slack in demand is supposed to be the heavy lifting of an economic recovery, the part of the job so big only the government can do it.

Boosting demand is considered crucial enough that it can justify drafting the young to fight in horrible wars, just to reduce the surplus labor supply. We know this from the standard schoolhouse wisdom that World War II ended the Great Depression (a notion that persists despite...